FTX’s financial mismanagement comes under the microscope

New York
CNN Business

The extent of FTX’s financial disarray is becoming increasingly clear as the failing crypto exchange’s new management seeks cash in the bankruptcy process.

In the business first Chapter 11 hearing in Delaware on Tuesday, restructuring attorney James Bromley said a “substantial amount” of assets were stolen or missing.

FTX, formerly one of the most trusted brands in crypto, filed for bankruptcy earlier this month. Its CEO and founder, Sam Bankman-Fried, has stepped down, marking the implosion of his multi-billion dollar crypto empire.

The rapid fall of FTX and Bankman-Fried has shaken investor confidence in the sector and triggered liquidity crises at other crypto companies.

Bromley called FTX’s failure “one of the sharpest and most difficult corporate collapses in American corporate history.” He described the FTX network of entities as an international organization “effectively run like a personal fiefdom of Sam Bankman-Fried”.

Ahead of the hearing, attorneys for FTX filed documents showing that the company and its affiliates had a total of $1.2 billion in cash, more than double the amount estimated in a previous court filing.

The updated figure underscores what FTX’s new chief executive described last week as a complete absence of centralized cash controls under Bankman-Fried’s leadership.

In a filing last week, CEO John J. Ray III said the new management team could only estimate the amount of available cash at around $564 million.

It was a chaotic month for the crypto industry as the failure of FTX sparked a contagion that left several other companies in financial peril.

One such firm, a crypto brokerage called Genesis, halted withdrawals last week, citing an “abnormal” number of requests that exceeded its current liquidity.

On Monday, Bloomberg reported that Genesis was struggling to raise an additional $1 billion in cash for its lending arm and that the company is warning potential investors that it may have to file for bankruptcy. The report cites unnamed sources; Genesis did not immediately respond to CNN Business’ request for comment.

Another top crypto lender, BlockFi, halted withdrawals as FTX crashed and appeared to be contemplating bankruptcy of its own, according to The Wall Street Journal.

When asked for comment, a representative for BlockFi referred CNN Business to the company’s previous statement on its blog, reiterating that there were “a number of scenarios” under consideration. “We are currently working to determine the best path forward for our customers,” the company said.


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